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Credit Constraints, Technology Choice and Exports: A Firm-level Study for Latin American Countries

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  • Syed Hasan
  • Ian Sheldon

Abstract

This paper introduces technology choice and credit access constraints in Melitz (2003) model under a dynamic setting to explain the factors that limit the prospects of a firm from availing trade liberalization benefits. Two such constraints which are specifically relevant in a developing country context are firm's access to credit and frontier level technology. The theoretical model confirms that firms face varying levels of credit constraints depending on their initial productivity and small firms are more constrained compared to large firms. Thus credit constrained firms operating below the production frontier may never be able to cross the minimum productivity threshold required to enter and sustain in a foreign market. The empirical evidence of the model is derived by analyzing the firm level data for five Latin American countries. The empirical findings indicate that firms are constrained both in technology adoption and the extensive margin of trade The study is significant as it focuses on firm level constraints which impact a country's participation in international trade by analyzing both theoretically and empirically the impact of credit constraints on the extensive and intensive margins of trade. An important policy implication of this study, for increasing exports, could be the diversion of public resources from subsidizing production to extending credits to prospective exporters which will ultimately result in directing resources towards more productive sectors of the economy.
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Suggested Citation

  • Syed Hasan & Ian Sheldon, 2016. "Credit Constraints, Technology Choice and Exports: A Firm-level Study for Latin American Countries," Review of Development Economics, Wiley Blackwell, vol. 20(2), pages 547-560, May.
  • Handle: RePEc:bla:rdevec:v:20:y:2016:i:2:p:547-560
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    File URL: http://hdl.handle.net/10.1111/rode.12248
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    References listed on IDEAS

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    1. Ricardo J. Caballero, 2000. "Structural Volatility in Chile: A Policy Report," Research Department Publications 4211, Inter-American Development Bank, Research Department.
    2. Kalina Manova, 2013. "Credit Constraints, Heterogeneous Firms, and International Trade," Review of Economic Studies, Oxford University Press, vol. 80(2), pages 711-744.
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    4. Joachim Wagner, 2014. "Credit constraints and exports: a survey of empirical studies using firm-level data," Industrial and Corporate Change, Oxford University Press, vol. 23(6), pages 1477-1492.
    5. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
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    Citations

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    Cited by:

    1. Joachim Wagner, 2014. "Credit constraints and exports: a survey of empirical studies using firm-level data," Industrial and Corporate Change, Oxford University Press, vol. 23(6), pages 1477-1492.
    2. Deniz Baglan & Hakan Yilmazkuday, 2016. "Financial Health and the Intensive Margin of Trade," Working Papers 1607, Florida International University, Department of Economics.
    3. Sandra M. Leitner & Robert Stehrer, 2016. "The Role of Financial Constraints for Different Innovation Strategies: Evidence for CESEE and FSU Countries," wiiw Working Papers 125, The Vienna Institute for International Economic Studies, wiiw.
    4. repec:mes:emfitr:v:54:y:2018:i:6:p:1304-1319 is not listed on IDEAS
    5. Sandra M. Leitner, 2015. "Firm growth and financing constraints in the NMS-10 and the Western Balkan countries – a comparative analysis," wiiw Balkan Observatory Working Papers 115, The Vienna Institute for International Economic Studies, wiiw.
    6. repec:mth:ber888:v:7:y:2017:i:1:p:227-241 is not listed on IDEAS
    7. Michael Landesmann & Sandra M. Leitner & Robert Stehrer, 2016. "Changing Patterns in M&E-Investment-Based Innovation Strategies in CESEE and FSU Countries," wiiw Working Papers 123, The Vienna Institute for International Economic Studies, wiiw.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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